Capital One to Change Credit Policies for Underbanked Consumers in New York

Capital One bank has agreed with New York State regulators to adjust its policies for the ChexSystems credit bureau to help underbanked customers open accounts.

Regulators’ attention is starting to focus in on how banks make use of credit reporting data to screen potential customers for credit-worthiness. Capital One became the first bank to respond by announcing today that it has agreed with New York State regulators to change its policies for using ChexSystems, a credit-reporting database that banks use to evaluate risk in customers opening new checking and savings accounts.

Regulators are concerned that screenings from ChexSystems and other credit bureaus unfairly block unbanked and underbanked customers from opening new accounts, a statement from the office of the New York State attorney general said. The credit bureaus often judge customers to be risky for minor errors such as over-drawing a checking account or bouncing a check, the statement explained.

Those customers are then forced to turn to other, more costly, options (such as check cashiers) for financial services. The attorney general’s statement cited a 2010 study in New York City that found that more than 825,000 residents in two lower-income neighborhoods -- Jamaica, Queens and Melrose in the Bronx -- did not have bank accounts, and paid more than $19 million per year for check cashing services.

Studies have found that more than 3 million New York households are unbanked or underbanked, the statement said.

The agreement between Capital One and New York State is the result of an investigation by the office of New York State attorney general Eric Schneiderman into banks’ use of credit bureau databases, according to media reports.

The Consumer Financial Protection Bureau is also “monitoring” how banks use credit bureau screenings to take on new customers, a spokeswoman for the bureau told the New York Times.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

re: Capital One to Change Credit Policies for Underbanked Consumers in New York

While I agree with your overall point, I don't think it applies in this case. The New York State investigation found that people were getting denied for an account because they had literally overdrawn ONCE, or bounced a check ONCE. That to me is excessive punishment that doesn't serve anyone's interests. The customers are hurt by not having access to the financial system, and the bank is hurt by cutting off a bug number of potential customers.

As an aside, there's a lot of movement I'm seeing in the industry in trying to find alternative ways to determine credit-worthiness beyond the traditional credit bureaus and reporting agencies. I think this indicates that the balance has been tilted towards denying customers new products and services for minor transgressions. Otherwise people wouldn't be trying to find other ways to determine customers' risk.

re: Capital One to Change Credit Policies for Underbanked Consumers in New York

We live in a remarkable society where we're at liberty to freely make personal choices, and to use products and services at our own discretion to better our lives. But what of the consequences and outcomes of those choices? Suddenly, if things don't turn out the way we would have liked our society goes crying off to some element of the government to fix it. Bought more house than you knew you could afford? No worries, the government will severely fine the mortgage banker who gave you the loan which you happily accepted including the second mortgage which you used to pay for the new car or vacation. Lost your job because someone else was more productive or worked harder, longer than you? No worries, the government will fine the employer for discrimination of some sort. Obese or suffering from heart disease or diabetes because you eat at McDonalds four or five times a week, smoke like a fiend and drink far more than you know you should? No worries, the government has a health care plan to pay for your emergent and long term care at the expense of others who make healthier choices. Somewhere along the line we have institutionalized a sense of eternal entitlement to the 'do over' with a rapidly increasing dis-equality between personal value choices and personal responsibility. "It's someone else's fault" has become the default mentality, an unfortunate mindset that also inevitably surrenders our rights to make free choices in the future.